FINANCIAL STATEMENTs 2016 Summary. City of Lahti

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1 FINANCIAL STATEMENTs 2016 Summary City of Lahti

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3 FINANCIAL STATEMENTS 2016 SUMMARY City Board

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5 3 TABLE OF CONTENTS 1 KEY OPERATIONAL AND FINANCIAL EVENTS Mayor's Review PROFIT AND LOSS STATEMENT CITY OF LAHTI PROFIT AND LOSS STATEMENT (all figures are in euros) CASH FLOW STATEMENT BALANCE SHEET CITY OF LAHTI KEY FIGURES GROUP STATEMENTS PROFIT AND LOSS STATEMENT (all figures are in euros) CASH FLOW STATEMENT (all figures are in euros) BALANCE SHEET LAHTI GROUP KEY FIGURES NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE PROFIT AND LOSS STATEMENT NOTES TO THE BALANCE SHEET NOTES TO THE GROUP FINANCIAL STATEMENTS NOTES TO THE GROUP PROFIT AND LOSS STATEMENT NOTES TO THE GROUP ASSETS NOTES TO THE GROUP LIABILITIES FORMULAE FOR KEY FIGURES AUDITORS REPORT... 52

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7 5 1 KEY OPERATIONAL AND FINANCIAL EVENTS 1.1 Mayor's Review 2016 was the first year of operation of the merged City of Lahti, marked by notable changes in both its governing bodies of trust and official organisation. A new strategy was prepared for the new city, and the rules and guidance were rewritten following the spirit of the merger agreement. During the financial year, a new Päijät-Häme well-being consortium was formed, which took over the City s social and health services as of 1 January The City has implemented the objectives of the merger agreement between Lahti and Nastola by strengthening the vitality and competitiveness of the region, and by ensuring necessary services and an attractive living environment for its residents. The entire city has been developed in a balanced manner. The preconditions for the development of Nastola have received special attention, using the means of land utilisation, the operations of the regional board, and focused merger support, among others. Lahti-Piste service points serve the residents in the main library of Lahti and the City s office building in Nastola. Lahti Travel Centre was opened in February. The investment projects of the city centre and the market square were completed in December. The economic situation of the public sector remained weak throughout last year and made its impact on the city s economy as well. There are, however, some positive signs that will benefit the city s economy later on, such as the positive development of regional employment and the increase in the city population. The City s 2016 financial result was weaker than budgeted. The annual margin of 38.7 million euros was approximately 2 million euros less than in the original budget. The original budget had targeted zero profit, but the result was in fact million euros. In the operational economy, commitment levels were exceeded, but on the other hand, some savings were achieved in allowances, which were further increased in the form of some positive end-of-year entries related to personnel costs. Total operating expenses rose by some 8 million euros. The biggest increases were seen in the purchased services of special health care and the expenses of the social and health affairs own operations. The cost of education and daycare services also increased. During the first year of operation, the merged municipality spent a total of 1.6 million euros of merger support payments for measures and target areas that will bring long-term benefits for the operations of the new city while introducing new beneficial approaches to future operations. The support payments helped cover the cost of the merger of the various city affairs and strengthen business activities. Depreciations on new premises, along with the extraordinary one-off write-downs on decommissioned buildings, exceeded the budget by some 6 million euros. As for the Group, the necessary stock write-down identified in connection with the Sammonkatu 8 property arrangements, the capital loss on the Nastola Municipal Waterworks, and the liabilities caused by the wind-down of the operations of Lahden Seudun Kuntatekniikka all contributed to the weakening of the consolidated result. On the other hand, the extraordinary income from the recovery of the surplus of Salpaus Further Education helped improve the outcome. The actual personnel wage cost was approximately 7.6 million euros lower than budgeted. During the year, the number of employees declined by 173, of whom 19 were permanent and 154 fixed term. A significant number some 20 in total of employment and contract relationships were made permanent during the year, particularly in social and health services. There were some changes in the organisation and division of tasks that also impacted the number of employees (the largest of which were the transfer of Lahden Tietotekniikka to Calpro Oy and the takeover of the upper secondary school of Nastopoli by the City). The impact of these changes, excluding comparable reduction in personnel, was approximately 140. City employees did excellent work in the circumstances, and activities were developed jointly with the personnel. The level of investments remained high. Net investments, being 12.7 million euros less than budgeted, amounted to 63.2 million euros, of which 61.3 per cent covered by revenues. Thanks to disposal proceeds, the cash flow from operations and investments, which describes the borrowing needed to cover service production and investments, was only -5.6 million euros. The surplus from previous years including the result from the current year is million euros as of 31 December The City s borrowing to cover its own operations amounted to million euros at the end of 2016; that is 1,737 euros per resident. The total Group debt was million euros at the end of the year. The City continues to consolidate its Group companies. KOKO Lahti Oy will be in charge of the activities of Lahden Sibeliustalo Oy and Lahden Messuyhtiö. The preparations for the upcoming provincial reorganisation included the forming of the new Päijät-Häme well-being consortium, which took over the organisation and production of the City s social and health services as of 1 January Approximately 2,400 employees transferred to the consortium, and around 345

8 6 million euros worth of own activities in the production of social and health services were converted into purchased services. The City is responding to the great changes in the operating environment through an organisational reform, which it started preparing in late A new, more customer-oriented, swift, integrated and streamlined organisation will be introduced at the beginning of the legislative term on 1 June A flexible city with services rooted in people s needs and preferences will be able to combine quality, economy and effectiveness in a new way, while at the same time strengthening both business and employment. Jyrki Myllyvirta Mayor

9 7 2 PROFIT AND LOSS STATEMENT 2.1 CITY OF LAHTI PROFIT AND LOSS STATEMENT (all figures are in euros) Income from operations Sales revenue 34,888, Revenue from fees 38,102, Aid and assistance 18,751, Rent revenue 26,511, Other income from operations 11,951, ,206, Production for own use 515, Operating expenses Personnel expenses Salaries and fees -212,227, Social security expenses Pension expenses -54,863, Other social security -12,767, Services purchased -337,905, Materials, supplies, and goods -28,675, Assistance and subsidies -65,507, Other operating expenses -27,234, ,180, Operating margin -608,458, Tax revenue 449,177, State aid 193,429, Financial income and expenses Interest income 8,901, Other financial income 12,113, Interest paid -13,929, Other financial expenses -2,548, Total financial income/expenses 4,538, Annual margin 38,686, Depreciation and write-downs Planned depreciation -44,830, Write-downs -4,586, Extraordinary items Extraordinary incomes 1,600, Extraordinary expenses -689, Result for the financial year -9,818, Increase(-)/decrease(+) in depreciation 532, Increase(-)/decrease(+) in funds SURPLUS (DEFICIT) FOR THE FINANCIAL YEAR -9,286,305.52

10 8 2.2 CASH FLOW STATEMENT CITY OF LAHTI CASH FLOW STATEMENT (all figures are in euros) 2016 Cash flow from operations Annual margin 38,686, Extraordinary items 910, Adjustment to retained earnings -5,551, ,046, Cash flow from investments Investment expenses -63,550, Financial contribution toward investments expenses 443, Revenue from sale of fixed assets 23,504, ,603, Cash flow from operations and investments -5,556, Financing cash flow Change in lending Increase in loan receivables -74,800, Decrease in loan receivables 35,773, ,026, Change in borrowing Increase in long-term debt 62,571, Decrease in long-term debt -55,875, Change in short-term debt 3,658, ,354, Other changes in liquidity Change in assignment assets and capital 92, Change in current assets 74, Change in receivables -1,953, Change in non-interest-bearing debt -3,885, ,671, Financing cash flow -34,343, Change in liquid assets -39,900, Change in liquid assets Liquid assets ,499, Liquid assets ,400, ,900,911.99

11 9 2.3 BALANCE SHEET CITY OF LAHTI BALANCE SHEET (all figures are in euros) ASSETS LONG-TERM ASSETS Intangible assets Intangible rights 238, Other long-term expenditure 7,586, Advance payments and work in progress ,825, Tangible assets Land and water areas 122,418, Buildings 265,285, Fixed structures and equipment 177,970, Machinery and equipment 9,022, Advance payments and work in progress 57, ,294, ,049, Investments Stock and shares 214,536, Other loan receivables 444,721, ,258, ASSIGNMENT ASSETS State assignments 0.00 Special margins for donation funds 290, , SHORT-TERM ASSETS Current assets Materials and supplies 161, Receivables Long-term receivables Loan receivables 25,155, Other receivables 375, Short-term receivables Accounts receivable 12,866, Loan receivables 67,514, Other receivables 7,333, Deferred assets 10,035, ,280, Marketable securities Stock and shares 10,457, Cash and bank receivables 44,041, TOTAL ASSETS 1,436,365,407.97

12 LIABILITIES EQUITY Original capital 437,196, Revaluation reserve 80, Other own reserves 10,308, Surplus from previous financial years 147,235, Surplus (deficit) for the financial year -9,286, ,534, DEPRECIATION DIFFERENCE AND VOLUNTARY RESERVES Depreciation difference 1,996, STATUTORY RESERVES Pension reserves 6,029, Other statutory reserves 2,660, ,689, ASSIGNMENT CAPITAL State assignments 7, Donation fund capital 3,399, ,407, EXTERNAL CAPITAL Long-term Bonds 40,000, Loans from financial and insurance institutions 612,250, Other loans 101, Connection fees and other payables 0.00 Deferred liabilities 5,054, ,406, Short-term Loans from financial and insurance institutions 52,430, Other loans 39,677, Advances received 634, Accounts payable 33,456, Other debt 5,352, Deferred liabilities 47,778, ,330, TOTAL LIABILITIES 1,436,365,407.97

13 CITY OF LAHTI KEY FIGURES CITY OF LAHTI KEY FIGURES 2016 Profit and loss statement key figures Operating income/operating expense, % 17.6% Annual margin/depreciation, % 78.3% Annual margin, in euros/resident 324 Inhabitants * 119,377 Number of staff 6,527 Cash flow statement key figures Accrued cash flow from operations and investments over 5 years, in euros -147,244,295 Internal financing of investments, % 61.3% Internal financing of capital expenditure, % 23.5% Debt coverage ratio 0.8 Cash sufficiency, days 21.0 Balance sheet key figures Solvency ratio, % 40.9% Relative indebtedness, % 108.2% Accrued surplus/deficit, in euros 137,949 Accrued surplus/deficit, in euros/resident 1,156 Debt, in euros/resident 6,236 Total borrowing as of , euros 744,459 Loan receivables as of , euros 444,722 *Preliminary figure for residents in 2016

14 12 3 GROUP STATEMENTS 3.1 PROFIT AND LOSS STATEMENT (all figures are in euros) LAHTI-GROUP Income from operations 558,052, Operating expenses -1,118,146, Share in profit (loss) of affiliated entities 36, OPERATING MARGIN -560,057, Tax revenue 444,753, State aid 265,390, Financial income and expenses Interest income 1,138, Other financial income 666, Interest paid -21,399, Other financial expenses -2,801, Total financial income/expenses -22,395, ANNUAL MARGIN 127,690, Depreciation and write-downs Planned depreciation -116,778, Ownership elimination difference -198, Write-downs -490, Depreciation and write-downs -117,466, Extraordinary items -135, RESULT FOR THE FINANCIAL YEAR 10,088, Adjustments -10, Income taxes paid from operations -5,345, Deferred taxes paid from operations -1,079, Minority interest 390, SURPLUS FOR THE FINANCIAL YEAR 4,043,217.41

15 CASH FLOW STATEMENT (all figures are in euros) LAHTI-GROUP 2016 Cash flow from operations ANNUAL MARGIN 127,690, Extraordinary items -135, taxes -5,345, Adjustment to retained earnings -1,976, ,232, Cash flow from investments Investment expenses -167,825, Financial contribution toward investment expenses 574, Revenue from sale of fixed assets 9,369, Cash flow from investments -157,881, Cash flow from operations and investments -37,649, Financing cash flow Change in lending Increase in loan receivables -24, Decrease in loan receivables 543, Change in lending 518, Change in borrowing Increase in long-term debt 75,096, Decrease in long-term debt -71,793, Change in short-term debt -8,331, Change in borrowing -5,028, Change in equity Change in equity 355, Change in minority interest -665, , Other changes in liquidity Change in assignment assets and capital 58, Change in current assets 9,002, Change in receivables -11,331, Change in non-interest-bearing debt 5,274, ,003, Financing cash flow -1,816, Change in liquid assets -39,465, Liquid assets at end of period 113,155, Liquid assets ,999, Change in the municipal federation share -379, Change in liquid assets -39,465,362.85

16 BALANCE SHEET LAHTI-GROUP ASSETS LONG-TERM ASSETS Intangible assets Intangible rights 7,808, ,278, Other long-term expenditure 14,177, ,571, Advance payments and work in progress 784, , Intangible assets 22,770, ,482, Tangible assets Land and water areas 139,682, ,516, Buildings 739,370, ,902, Fixed structures and equipment 370,815, ,160, Machinery and equipment 176,024, ,194, Other tangible assets 3,245, ,872, Advance payments and assets under construction 77,454, ,434, Tangible assets 1,506,592, ,480,080, Investments Stock and shares in affiliated entities 545, , Other stock and shares and revaluation of shares 76,751, ,029, Bond receivables 203, , Other loan receivables 10,593, ,134, Other receivables 82, , Investments 88,176, ,962, LONG-TERM ASSETS 1,617,539, ,580,526, ASSIGNMENT RESERVES 1,205, ,471, SHORT-TERM ASSETS Current assets 23,122, ,181, Long-term receivables 6,854, ,834, Short-term receivables 99,348, ,506, Marketable securities 18,173, ,944, Cash and bank receivables 94,981, ,054, SHORT-TERM ASSETS 242,481, ,522, ASSETS 1,861,226, ,861,520,775.00

17 15 LAHTI-GROUP LIABILITIES EQUITY Original capital 437,196, ,196, Original capital of associations and foundations 74, , Revaluation reserve 6,310, ,830, Other own reserves 13,133, ,126, Surplus (deficit) from previous periods 128,109, ,420, Surplus (deficit) for the financial year 4,043, EQUITY 588,867, ,648, MINORITY INTERESTS 15,325, ,115, CONSOLIDATION DIFFERENCE 1,542, ,314, STATUTORY RESERVES Pension reserves 6,029, ,151, Other statutory reserves 13,508, ,264, STATUTORY RESERVES 19,537, ,416, ASSIGNMENT CAPITAL 5,698, ,919, EXTERNAL CAPITAL Long-term interest-bearing debt 921,308, ,791, Long-term non-interest-bearing debt 57,281, ,332, Short-term interest-bearing debt 68,180, ,847, Short-term non-interest-bearing debt 183,484, ,135, EXTERNAL CAPITAL 1,230,255, ,229,107, LIABILITIES 1,861,226, ,861,520,774.99

18 LAHTI GROUP KEY FIGURES KEY FIGURES 2016 Profit and loss statement key figures Operating income/operating expense, % 49.9% Annual margin/depreciation, % 108.9% Annual margin, in euros/resident 1,070 Inhabitants * 119,377 Number of staff 11,007 Cash flow statement key figures Accrued cash flow from operations and investments over 5 years, in euros -383,005,363 Internal financing of investments, % 76.3% Debt coverage ratio 1,6 Cash sufficiency, days 29,9 Balance sheet key figures Solvency ratio, % 32.8% Relative indebtedness, % 96.0% Accrued surplus/deficit, in euros 132,152 Accrued surplus/deficit, in euros/resident 1,107 Total borrowing as of , euros 989,489 Total borrowing as of , in euros/resident 8,289 Loan receivables as of , euros 10,797 *Preliminary figure for residents in 2016

19 17 4 NOTES TO THE FINANCIAL STATEMENTS Notes to the preparation of the financial statements Valuation principles and methods; allocation principles and methods Valuation of fixed assets Tangible and intangible fixed assets have been reported at acquisition cost less planned depreciation and financial contribution received towards investment expenses. The planned depreciations have been calculated according to a depreciation plan prepared in advance. The calculation of planned depreciations and their bases are described in the notes to the profit and loss statement under Bases of planned depreciations. Valuation of investments Investments in fixed assets are valuated at acquisition cost or lower. The valuation is based on the future income likely to be accrued from the asset or its value in service production. Valuation of current assets Current assets in the balance sheet are valued according to the weighted average acquisition cost or likely acquisition cost or at their likely sales price, whichever is lower. Valuation of financial assets Receivables are valuated at their nominal or likely value, whichever is lower. Financial securities are valuated at their acquisition cost or likely sales price, whichever is lower. Treatment of derivative contracts Derivative contracts include interest rate swaps, interest rate and currency swaps, and interest rate swaps with a right to extend or terminate (swaptions). All derivative contracts have been entered into with the purpose of hedging the City s current or future borrowings. Derivative contracts are used to manage the interest rate risk of borrowing with the purpose of offsetting the impact of changes in interest rates, predicting cash flows and lowering the interest cost. Using currency swaps, debt denominated in GBP or SEK has been converted into EUR at exchange rates set through interest rate and currency swaps, agreed upon for the dates of both drawdown and maturity at the time of the drawing down of the loans. Hence, currency risk has been eliminated. The maximum duration of derivative contracts extends to Allocation principles Revenue and expenditure are reported on an accrual basis. In contrast, tax revenue is reported based on the time of payment during the financial year, and interest income on the subordinated loans granted to the following company: Kuntien Tiera Oy, in 2016, EUR 12, in total EUR 35, Treatment of subsidies Financial assistance received for the acquisition of fixed tangible assets is recorded as a deduction of the acquisition price of the asset in question. Merger support payment for the merger of the City of Lahti and the municipality of Nastola at the beginning of 2016 and the compensation for the reduction in state aid have been recorded as income on cash basis under the entry Aid and assistance. Comparability with the previous financial period The City of Lahti and the municipality of Nastola merged on 1 January The new City of Lahti that is continuing the operations of the municipal consolidation has prepared the opening balance sheet for its first financial year, combining the previous balance sheets of the consolidated municipalities line by line and eliminating mutual assets and liabilities. The data from this opening balance sheet prepared from the balance sheets of the merged municipalities has been used as reference data for the first balance sheet after the merger. No reference data is presented for the profit and loss statement, the financial statement or the notes. The key figure of the financial statement Accrued cash flow from operations and investments over 5 years is the combination of the figures of the municipalities before the consolidation. Extraordinary income includes a surplus refund in the amount of EUR 1.6 million from the Salpaus Further Education municipal consortium. The new City of Lahti s unit Nastolan Municipal Waterworks was transferred in an asset deal to Lahti Aqua Group as of 1 January The loss of EUR 0.7 million incurred on the deal is included in the extraordinary expenses. Other conditional assignment capital has been transferred to the Donation fund capital. Reference data has been adjusted accordingly. Treatment of errors regarding previous financial years The current financial statements include a correction of errors in the 2015 financial statements of Nastola in the amount of EUR 0.9 million, as well as the decision of the Administrative Court of Hämeenlinna regarding housing services for the disabled in the amount of EUR 0.4 million. The adjustments have been included in the surplus from previous financial years and reference data has been adjusted accordingly.

20 NOTES TO THE PROFIT AND LOSS STATEMENT CITY OF LAHTI 2016 OPERATING INCOME BY BUSINESS FUNCTION Social and health services 51,765, Education and cultural services 21,721, Utilities 33,302, Housing and real estate services 8,448, Other services 14,967, Total income from operations 130,206, TAX REVENUE Municipal tax revenue 390,502, Share in corporate tax revenue 22,131, Real estate tax 36,542, Total tax revenue 449,177, STATE AID State s share of basic municipal services 170,387, Adjustment of state s share based on tax revenue 29,332, State s share of education and cultural services -6,290, Total state aid 193,429, SERVICES PURCHASED ITEMISED Customer services purchased 228,998, Other services purchased 108,907, Total municipal services purchased 337,905, AID TO COUNCIL GROUPS Left Alliance, Lahti 3, National Coalition Party, Lahti 12, Centre Party Greens, Lahti 2, Social Democrats, Lahti 6, Christian Democrats, Lahti 2, TOTAL AID TO COUNCIL GROUPS 27, CHANGE IN STATUTORY RESERVES Pension reserve 1.1 8,151, Decrease -2,122, Pension reserve ,029, Other statutory reserves Reserve for environmental liabilities, , Reserve for environmental liabilities, , Share in deficit of municipal federation 1.1 1,859, Decrease -1,859, Share in deficit of municipal federation Other statutory reserves, 1.1 2,500, Decrease -2,500, Increase 2,420, Other statutory reserves ,420, Total other statutory reserves, ,660, Total reserves 8,689,572.40

21 19 CITY OF LAHTI 2016 CAPITAL GAINS AND LOSSES FROM FIXED ASSETS Other income from operations Capital gains from land and water areas 2,278, Capital gains from buildings 814, Other capital gains 500, Total capital gains 3,593, Other operating expenses Capital losses from buildings 3, Other capital losses 2, Total capital losses 5, EXTRAORDINARY INCOME AND EXPENDITURE Extraordinary income Surplus refund, Salpaus Further Education 1,600, Total extraordinary income 1,600, Extraordinary expenditure Sale of Nastola Municipal Waterworks 689, Extraordinary expenditure 689, Total extraordinary items 910, DIVIDEND INCOME AND INTEREST ON SHARE CAPITAL, ITEMISED Dividend income from Group companies 11,628, Dividend income and interest on share capital from others 100, Total 11,729,649.55

22 20 ACCOUNT ON THE BASES USED FOR PLANNED DEPRECIATIONS Depreciations were determined based on a depreciation plan prepared in advance. Planned depreciations have been calculated on the basis of the useful life of tangible and intangible fixed assets, estimated based on their acquisition cost. Estimated depreciation times and methods: City of Lahti s depreciation plan until City of Lahti s depreciation plan unless applied for exemption Nastola municipality s depreciation plan until Depreciation plan for fixed assets acquired since unless applied for exemption % Fixed assets Intangible assets Development expenditure % Intangible rights % Goodwill Other long-term expenditure Computer software Other % Tangible assets Land and water areas Buildings and constructions Administrative and institutional buildings % Industrial and production buildings % Outbuildings % Recreational buildings % Residential buildings Fixed structures and equipment Streets, roads, market squares, parks Net expenditures 15% Bridges, piers, swimming pools Net expenditures 15% 10 10% Other land and water constructions Net expenditures 10% % Water distribution network Net expenditures 8% % Sewer system Net expenditures 8% % Electric wires, transformer stations, % outdoor lighting Other pipelines and cable networks Net expenditures 20% % Institutional machines and equipment Net expenditures 20% 10 10% for electricity, water, etc. Traffic control equipment % Other fixed machinery, equipment % and structures Building overhauls Useful economic life Useful economic life Useful economic life calc. separately for each investment calc. separately for each investment calc. separately for each investment Machinery and equipment Other transport equipment % Other mobile machinery % Other heavy machinery % Other light machinery % Hospital, health care and similar % equipment Computer equipment 3 5 years % Other equipment and fixtures 3-15 years % Other tangible assets Natural resources Art and valuables depreciation based on use no write-off period depreciation based on use no write-off period depreciation based on use no write-off period depreciation based on use no write-off period Advances and assets under construction no write-off period no write-off period no write-off period Investment in fixed assets Stocks and shares no write-off period no write-off period no write-off period 50% 50% 3.30% 6.70% Acquisitions of less than 10,000 euros (VAT 0%) are included in annual expenditure.

23 NOTES TO THE BALANCE SHEET CITY OF LAHTI 2016 NOTES TO THE ASSETS LONG-TERM ASSETS INTANGIBLE ASSETS Intangible rights Depreciable acquisition cost 1.1 (+) 714, Increase (investments) (+) 41, Decrease (-) -26, Depreciations for the period (-) -490, Intangible rights 238, Other long-term expenditure Depreciable acquisition cost 1.1 (+) 6,000, Increase (investments) (+) 3,135, Transfers between items (+/-) 903, Depreciations for the period (-) -2,452, Other long-term expenditure 7,586, Material additional depreciations 580, Material additional depreciations itemised Depreciation on other long-term expenditure includes material additional depreciations due to the write-down of SAP HR system - SAP HR EUR 580, Intangible work in progress Depreciable acquisition cost 1.1 (+) 112, Transfers between items (+/-) -112, Intangible work in progress 0.00 Intangible assets 7,825, TANGIBLE ASSETS Land and water areas Depreciable acquisition cost 1.1 (+) 120,694, Increase (investments) (+) 1,990, Decrease (-) -295, Transfers between items (+/-) 30, Land and water areas 122,418,594.85

24 CITY OF LAHTI 2016 Buildings Depreciable acquisition cost 1.1 (+) 275,702, Increase (investments) (+) 11,881, Financial contributions of financial year -274, Decrease (-) -4,818, Transfers between items (+/-) 3,734, Depreciations for the period (-) -20,940, Buildings 265,285, Material additional depreciations Material additional depreciations itemised 3,955, Depreciation for buildings includes material additional depreciation due to demolition of a building or ceasing of its use: - Laune Comprehensive School EUR 2,955, Kivimaa Comprehensive, Upper level, EUR 1,000, in total Fixed structures and equipment Depreciable acquisition cost 1.1 (+) 183,818, Increase (investments) (+) 21,311, Financial contributions of financial year -169, Decrease (-) -12,920, Transfers between items (+/-) 1,682, Depreciations for the period (-) -15,752, Fixed structures and equipment 177,970, Machinery and equipment Depreciable acquisition cost 1.1 (+) 10,111, Increase (investments) (+) 4,003, Decrease (-) -50, Transfers between items (+/-) 163, Depreciations for the period (-) -5,194, Write-downs (-) and recovery (+) -11, Machinery and equipment 9,022, Other tangible assets Depreciable acquisition cost 1.1 (+) 82, Increase (investments) (+) 10, Depreciations for the period (-) -35, Other tangible assets 57, Advance payments and assets under construction Assets under construction Depreciable acquisition cost 1.1 (+) 10,361, Increase (investments) (+) 13,022, Decrease (-) -196, Transfers between items (+/-) -6,402, Decrease in value (-) -490, Assets under construction 16,294, Advance payments and assets under construction 16,294, Tangible assets 591,049,910.95

25 CITY OF LAHTI 2016 INVESTMENTS Stocks and shares Stocks and shares in subsidiaries Book value 1.1 (+) 142,406, Increase (investments) (+) 8,177, Transfers between items (+/-) 43, Decrease in value during the period (-) -4,047, Stocks and shares in subsidiaries 146,579, Shares in municipal federations Book value 1.1 (+) 67,837, Deductions for shares in municipal federations (-) -3,153, Shares in municipal federations 64,683, Stocks and shares in affiliated entities and other holding participations Stocks and shares in affiliated entities Book value 1.1 (+) 154, Transfers between items (+/-) -43, Stocks and shares in affiliated entities 110, Other stocks and shares Book value 1.1 (+) 3,719, Increase (investments) (+) 2, Decrease (-) -558, Other stocks and shares 3,162, Stocks and shares 214,536, Other loan receivables Receivables on subordinated loans to subsidiaries Acquisition cost ,742, Increase (+) 30,500, Decrease (-) -205, Acquisition cost ,037, Book value ,037, Receivables on subordinated loans to others Acquisition cost , Acquisition cost , Book value , Other loan receivables from subsidiaries Acquisition cost ,828, Increase (+) 44,300, Decrease (-) -35,033, Acquisition cost ,095, Book value ,095, Other loan receivables from others Acquisition cost ,852, Decrease (-) -534, Acquisition cost ,318, Book value ,318, Total other loan receivables 444,721, Investments 659,258,

26 CITY OF LAHTI RECEIVABLES FROM SUBSIDIARIES, MUNICIPAL FEDERATIONS AND AFFILIATED AND OTHER HOLDING PARTICIPATIONS Receivables from subsidiaries Long-term Loan receivables 25,000, Total long-term 25,000, Short-term Accounts receivable 364, Group accounts receivable 61,990, Loan receivables 5,375, Other receivables 372, Deferred assets 1,851, Total short-term 69,953, Total receivables from subsidiaries 94,953, Receivables from municipal federations in which the City participates Accounts receivable 670, Total 670, Total receivables 95,623, MATERIAL ITEMS INCLUDED IN DEFERRED ASSETS Short-term deferred receivables State aid and EU subsidies 4,354, Kela payments for occupational health care 1,270, Deferred interest 2,230, Parking tickets 216, Refund for municipal pension payment, Keva 173, Balance of Sotevi/Smartum service vouchers , Board of Education state participation adjustment 566, International sports 400, Other deferred assets 418, Material items included in other deferred assets 10,035,019.51

27 25 NOTES TO THE BALANCE SHEET CITY OF LAHTI 2016 NOTES TO THE LIABILITIES EQUITY ITEMISED Original own funds Original own funds ,196, Original own funds 437,196, Revaluation reserve Revaluation reserve , Revaluation reserve deductions -6, Revaluation reserve 80, Other own funds City of Lahti s 90th anniversary fund , City of Lahti s 90th anniversary fund , City of Lahti s damage fund ,266, City of Lahti s damage fund ,266, Other own funds 10,308, Change in surplus (deficit) from previous periods Surplus (deficit) from previous periods ,492, Adjustments to previous periods -1,257, Surplus (deficit) from previous periods 147,235, Surplus (deficit) for the financial year -9,286, EQUITY 585,534,510.18

28 CITY OF LAHTI 2016 DEBT MATURING IN MORE THAN 5 YEARS Loans from financial and insurance institutions 494,100, Debt maturing in more than 5 years 494,100, BONDS Bond 2015/ ,000, MATERIAL ITEMS INCLUDED IN STATUTORY RESERVES ITEMISED Pension reserve 6,029, Pension reserves 6,029, Other statutory reserves Reserve for environmental liabilities 240, Other statutory reserves 2,420, Other statutory reserves 2,660, STATUTORY RESERVES 8,689, DEBT TO SUBSIDIARIES, MUNICIPAL FEDERATIONS IN WHICH THE CITY PARTICIPATES, AND AFFILIATED AND OTHER HOLDING PARTICIPATIONS Debt to subsidiaries Long-term Other debt 101, Total 101, Short-term Accounts payable 3,457, Group accounts payable 39,628, Other debt 48, Deferred liabilities 129, Total 43,264, Debt to municipal federations in which the City participates Long-term Deferred liabilities patient injury liability 5,054, Short-term Accounts payable 5,459, Total 5,459, CHEQUE ACCOUNT LIMIT Credit limit on cheque account ,000, unused amount 20,000,

29 CITY OF LAHTI 2016 MATERIAL ITEMS INCLUDED IN DEFERRED LIABILITIES Long-term deferred liabilities Deferred liabilities regarding member municipalities, patient injury liability 5,054, Short-term deferred liabilities Amortised personnel expenses -wages 26,570, social security expenses 10,888, Deferred interest 4,594, Patient injury liability 278, Unused portion of Midinvest Fund Ky s capital investment 126, Advance payments for land use compensation 2,612, Advance payments of state aid and EU subsidies 1,569, Statutory accident insurance 168, Reserve for estimated social and health service expenses in , Other deferred liabilities 569, Material items included in other deferred liabilities 47,778, RENTAL LIABILITIES Total rental liability, effective until Payable in next financial year 7,778, Payable later 45,680, Total leasing liabilities Payable in next financial year 5,667, Payable later 3,823, Total 9,490, Leasing contracts do not include material liabilities subject to a termination and paying-off clause. CONTINGENT LIABILITIES Guarantees for Group entities Original capital 174,740, Remaining capital 151,836, LIABILITY FOR MUNICIPAL GUARANTEE BOARD S GUARANTEES City s share of Guarantee Board s guarantees ,576, City s share of potential liability in the Guarantee Board s fund s liability, ,390.05

30 CITY OF LAHTI OTHER FINANCIAL LIABILITIES Contractual liabilities Liabilities arising from land use contracts 1,900, Advance payments for land use contracts 2,612, Collaboration and partnership agreements 3,475, Total contractual liabilities 7,987, Value added tax refund liability , Derivative contracts Interest rate swaps Market value -9,334, Value of underlying asset 156,000, Interest rate and currency swaps Market value -3,510, Value of underlying asset 60,000, Swaptions *) Market value -14,946, Value of underlying asset 98,000, *) Counterparty s right to extend or terminate. Pending court actions with the City as defendant Court Administrative Court of Hämeenlinna 412, Päijät-Häme District Court 3, Total 415, Derivative contracts The City s management of borrowing and financial risks follows the guidelines set in the City s financial policy. Financial risks are managed by diversifying loans in accordance with the market situation at the time of drawing, taking account of the existing loan portfolio, the determination of the new loan s interest rate, currency and maturity, or by separate derivative contracts. Derivative contracts are used to hedge against interest rate and currency risks. The management of the interest rate risk aims at offsetting the adverse impact of changes in interest rates, improving the predictability of cash flows, and reducing interest cost. Derivative contracts are used to change the interest rate and/or currency allocation of fixed- and floating-rate loans on the basis of cyclical conditions and interest rate expectations. The City aims to hedge against any additional cost arising from interest rate movements and to keep the financial burden resulting from borrowing as light and predictable as possible. Uncertainty associated with the exchange rate changes related to loans denominated in foreign currencies i.e. currency risk is eliminated using currency and interest rate swaps at the time of the drawing of the loan. The City uses derivative contracts for the hedging of both existing and future loans. In addition to the hedging of single loans with derivative contracts, there is hedging of the entire loan portfolio without a loan-specific link. Also, some of the hedging measures have focused on keeping the loan portfolio at a reasonable level even decades later, when current loans have reached maturity.

31 29 Below is a list of derivative contracts that is current as of the end of the financial year. For each contract, the purpose of the hedge has been described. Some of the derivative contracts form fixed contract packages wherein the interest rate risk has been hedged against by means of a combination of several contracts, while efforts have been made at the same time to keep the financing cost reasonable and predictable. There were three such packages at the end of the year. Derivative contracts forming a package have been denoted with the letter A, B or C. Package A includes the arrangement related to a single 30-year loan wherein the interest cost of the fixed rate loan is reduced for the first 15 years. After this, the interest rate will be either the original fixed rate or a variable market rate. Both package B and package C contain arrangements for a single loan wherein the interest cost of the fixed-rate loan is reduced for the entire duration of the loan. At the same time, the interest rate risk of the future loan portfolio has been hedged against by conversion of the interest rate on future variable-rate loans to a fixed rate. The effectiveness of a hedge of a future loan portfolio depends on the market situation and whether the bank exercises its option or not. Interest rate swaps Interest rate swap 1 Notional principal amount EUR 63,000, Market value as of (incl. deferred interest), per bank statement EUR -3,114, Interest paid 0.875% Interest received 3-month Euribor Instalment plan Bullet Commencement date 11 December 2014 Maturity date 11 December 2024 Interest rate swap 1 was entered into to hedge against the interest rate risk of a single loan: The contract was used to change a variable rate into a fixed rate. The principal value, maturity and interest-payment dates of the loan are equivalent to those of the interest rate swap. The annual interest cost of the loan will not exceed 0.875% (EUR 551,250) plus the margin paid for the variable rate loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. Interest rate swap 2 Notional principal amount EUR 20,000, Market value as of (incl. deferred interest),per bank statement EUR -2,741, Interest paid 3.36% Interest received 6-month Euribor Instalment plan Bullet Commencement date 24 April 2013 Maturity date 15 September 2020 Initially, interest rate swap 2 was associated with a loan that matured in 2015 and another interest rate swap. Since then, the interest rate swap 2 has protected the entire loan portfolio: Through the contract, the variable interest rate is changed into a fixed rate for , during which time the City has had and will have an outstanding loan/loans in the amount of at least EUR 20 million with an interest rate linked to the 6-month Euribor; the loan(s) will not be associated with other derivative contracts. In December 2016, a loan of EUR 20 million with an interest rate linked to the 6- month Euribor was drawn, the interest payment dates of which are equivalent to those of the interest rate swap 2 as of 15 March After this, the interest rate swap will be directed to hedge against the interest rate risk of that loan until The annual interest cost of the loan of EUR 20 million for will not exceed 3.36% (EUR 672,000) plus the margin paid for the variable-rate loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap.

32 30 Interest rate swap 3 Notional principal amount EUR 20,000, Market value as of (incl. deferred interest),per bank statement EUR -3,255, Interest paid 2.46% Interest received 6-month Euribor Instalment plan Bullet Commencement date 25 May 2035 Maturity date 25 May 2055 Interest rate swap 3 protects the entire loan portfolio: A future interest rate swap will be used to change the variable interest rate into a fixed rate for , which requires that the City has an outstanding loan of an equivalent amount with an interest rate linked to the 6-month Euribor during that period. Taking into account such an interest rate swap, the annual interest cost of the loan of EUR 20 million will not exceed 2.46% (EUR 492,000) plus the margin paid for the variable-rate loan plus, should the Euribor rate be negative, the portion of the variable interest on the interest rate swap. Each party has the option to terminate the interest rate swap early, on 25 May 2025, 25 May 2035 and 25 May The bank has an interest in early termination when the 6-month Euribor exceeds 2.46%. In such a case, the bank will pay the City the current negative market value of the contract. If the 6-month Euribor is below 2.46%, the City may decide to terminate the contract on any of the dates mentioned. If that is the case, the City will pay the bank the current negative market value of the contract. The hedge of the loan portfolio through the interest rate swap will end if either of the parties exercises its option to terminate the contract early. Interest rate swap 4 (part of package A) Notional principal amount EUR 21,000, Market value as of (incl. deferred interest),per bank statement EUR -2,727, Interest paid 4.20% Interest received 6-month Euribor Instalment plan Bullet Commencement date 1 December 2004 Maturity date 2 December 2019 Package A consists of interest rate swaps 4 and 9 (with the right to terminate). Interest rate swap 5 (part of package B) Notional principal amount EUR 15,000, Market value as of (incl. deferred interest), per bank statement EUR 734, Interest paid 12 month Euribor Interest received 12 month Euribor + margin Instalment plan Bullet Commencement date 7 October 2010 Maturity date 7 April 2020 Package B consists of interest rate swaps 5 and 10 (with the right to extend).

33 31 Interest rate swap 6 (part of package C) Notional principal amount EUR 17,000, Market value as of (incl. deferred interest),per bank statement EUR 1,771, Interest paid 12 month Euribor Interest received 12 month Euribor + margin Instalment plan Bullet Commencement date 26 August 2013 Maturity date 26 August 2022 Package C consists of interest rate swaps 6 and 11 (with the right to extend). Interest rate and currency swaps Interest rate and currency swap 7 Notional principal amount EUR 30,000, / GBP 24,240, Market value as of (incl. deferred interest),per bank statement EUR -1,668, Interest paid 12 month Euribor + margin Interest received 1 month GBP LIBOR + margin Instalment plan Bullet Commencement date 8 June 2012 Maturity date 8 June 2017 By means of interest rate and currency swap 7, a currency loan was converted into euros at the drawing and will carry interest at a rate linked to the 12-month Euribor. Currency risk associated with currency fluctuations has been eliminated. The principals, maturities and interest payment dates under the contracts are equivalent in value. Interest rate and currency swap 8 Notional principal amount EUR 30,000, / SEK 270,000, Market value as of (incl. deferred interest), per bank statement EUR -1,841, Interest paid 12 month Euribor + margin Interest received 1 month STIBOR + margin Instalment plan Bullet Commencement date 10 June 2011 Maturity date 10 June 2021 By means of interest rate and currency swap 8, a currency loan was converted into euros at the drawing and will carry interest at a rate linked to the 12-month Euribor. Currency risk associated with currency fluctuations has been eliminated. The principals, maturities and interest payment dates under the contracts are equivalent in value.

34 32 Interest rate swaps with right to extend or terminate Interest rate swap 9 with right to terminate (part of package A) Notional principal amount EUR 21,000, Market value as of (incl. deferred interest), EUR 12,133, per bank statement Interest paid 6-month Euribor Interest received 4.57% Instalment plan Bullet Commencement date 1 December 2004 Maturity date 1 December 2034 Right to terminate Notional principal amount EUR 21,000, Market value as of , per bank statement EUR -9,238, Seller of the option Buyer of the option Right to terminate City of Lahti Bank 28 November 2019 and 29 November 2029 Package A consists of interest rate swaps 4 and 9 (with the right to terminate): This package has helped to reduce the financing cost of a fixed-rate loan for Later in and/or the interest to be paid on this loan, depending on the market situation, will be either the initial fixed interest rate or a variable rate tied to the 6- month Euribor. Until 2019, the annual interest of the EUR 21 million loan will not exceed 4.20% (EUR 882,000). The principal and interest-payment dates (for the fixed rate) of the loan are equivalent to those of interest rate swap 4. Interest rate swap 9 with right to terminate includes the bank s right to terminate the swap on 28 November 2019 or 29 November If the 6-month Euribor is lower than 4.57%, the bank will exercise its right to terminate and the City will pay the initial fixed rate of 4.57% (EUR 959,700 p.a.) until the 2034 maturity date. If the 6-month Euribor is higher than 4.57%, the bank will not exercise its right to terminate and the interest rate swap will remain in effect until the maturity date/expiry of the right to terminate, and the interest on the loan will be the 6-month Euribor until 29 November 2029 or until the 2034 maturity date. The interest cost of the loan will then depend on the market situation and the level of the 6-month Euribor. If the interest rate rises from the level of the time of exercising of the option by one percentage point (i.e. to 5.57%), the annual interest would be EUR 1,169,700. Interest rate swap 10 with right to extend (part of package B) Notional principal amount EUR 37,000, Market value as of (incl. deferred interest), EUR -6,955, per bank statement Seller of the option City of Lahti Buyer of the option Bank Interest paid 2.20% Interest received 6-month Euribor Instalment plan Bullet Commencement date 7 April 2020 Maturity date 7 April 2040 Package B consists of interest rate swaps 5 and 10 (with the right to extend): This package has been used to reduce the interest cost of a fixed-rate loan in At the same time, future rates have been changed into fixed rates for , provided that the bank will exercise its option. Interest rate swap 5 has been used to reduce the interest cost of a fixed-rate loan by the margin applied to the swap until maturity in The principal and interest-payment dates of the loan are equivalent to those of interest rate swap 5. The maturity date for both is in 2020.